The Surge in GenAI Investment: A Strategic Shift in IT Budgets

With modest GDP growth and stagnant budgets, organizations worldwide are reallocating funds from mature areas to support IT investments. While cloud services and security infrastructure remain key priorities, generative AI (GenAI) is increasingly taking the spotlight as companies strive for significant productivity improvements. According to a new report by Boston Consulting Group (BCG), GenAI investment is expected to grow by 30%, with leaders from companies with high GenAI maturity anticipating their return on investment to be three times higher over the next three years than that of companies with little or no adoption of the technology.

The report, titled "IT Spending Pulse: As GenAI Investment Grows, Other IT Projects Get Squeezed," is based on a joint survey with GLG, conducted in Q1 2024. It captures insights from 330 IT buyers at the director level or higher, across various industries. Of the respondents, 66% are from North America and 34% from Europe. The focus is on large and midsize companies, with 60% of respondents from large enterprises and 40% from midsize firms.

"The emergence of GenAI has made it imperative for many companies to adapt," said Clark O'Niell, a managing director and partner at BCG and a coauthor of the report. "Successful companies will be those that manage a difficult balancing act: allocating IT budgets to keep pace with GenAI while maintaining adequate funding for essential day-to-day operations."

IT budgets are experiencing steady, modest growth, increasing by 3.2% in 2023 from the previous year and further rising to 3.3% in 2024. Survey respondents gave equal importance to cost control and enabling growth, with 54% indicating that each is a top-three priority. Since the previous IT Spending Pulse survey in the third quarter of 2023, growth increased in importance by 5% while cost as a priority decreased by 2%. Also top of mind for leaders was security and digital transformation, with 61% and 60% respectively rating these as top-three priorities.

Leaders are intent on directing their spending toward growth areas deemed high-impact and high-necessity, including artificial intelligence (AI) and machine learning (ML) (with a 30% net spend increase), security infrastructure (27%), cloud services (30%), and analytics (18%). Respondents expect the largest net spend decreases to occur in server infrastructure (24%) and devices (16%).

The report’s authors developed a GenAI maturity index to assess where companies currently land in their development. Based on the level of implementation across ten business functions, companies were grouped into four categories: little to no adoption, low maturity, mid maturity, and high maturity. Only about 20% of companies have little or no GenAI adoption, down from about 24% in Q3 2023. Although the percentage of companies with high maturity adoption has stayed constant (~12%), the percentage of mid maturity companies jumped from ~18% to ~27%.

Tech companies are at the forefront, with 62% qualifying as mid or high maturity, followed by the banking, retail, industrial goods, and healthcare industries, where 32% to 39% of companies have reached similar levels of maturity. Among the industries lagging are energy, travel and tourism, and insurance, each with at least 40% of companies showing little to no adoption of GenAI.

As companies navigate this evolving landscape, the strategic allocation of IT budgets towards GenAI and other high-impact areas will be crucial for maintaining competitive advantage and driving future growth. For more insights on how AI is transforming various industries, read more blogs from our website.

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